Information for New Zealanders living in Australia

Expats lose capital gains tax exemption on home

The government's amendments on the capital gains tax apply to properties purchased from budget night, 9 May 2017. (Photo: Arsineh Houspian)
The government's amendments on the capital gains tax apply to properties purchased from budget night, 9 May 2017. (Photo: Arsineh Houspian)

2 August 2017

Michael Pascoe - Stuff

Expatriates, including temporary expatriates, are set to become collateral damage from the government's nationalistic “Australian homes for Australians first” policy.

Sell your family home while living overseas, and you could lose the owner-occupier capital gains tax exemption.

The key to the change is whether someone is resident in Australia for tax purposes when signing a contract to sell. Own and occupy a home for 20 years in Australia, take a job overseas and decide to sell the house while you're not an Australian tax resident and, whack, CGT on every dollar by which the home has appreciated since the day it was purchased.

Price Waterhouse is warning the draft legislation could make it harder for employers to hire Australians to work overseas. BDO tax partner Mark Molesworth says it's neither fair or reasonable.

“The removal of the exemption for non-residents is total, and is measured by reference to the owner's residency status at the time that they sign the contract to sell the property,” says Molesworth.

“Australian citizens who have owned their home for many years will be taxed on the full gain on the property from the time they bought it if they happen to be a non-resident for tax purposes when they sell.”

“Adriana and her husband Bernard are Australian citizens by birth. They acquired their home in Sydney in 1990 for $500,000. They have lived there their entire married lives and raised their children in the house. In mid-2019 Adriana is offered a job working full time in New Zealand for a contract period of five years. As their children have grown up and moved away, she and Bernard decide to relocate themselves to New Zealand to take up this opportunity and leave Australia for this purpose on 31 December 2019.

“In preparation for their departure, Adriana and Bernard put their Sydney house on the market. After a period of negotiation, they sign the contract to sell the property on 15 January 2020 for $2.5 million. Assuming that they became non-residents of Australia on 1 January 2020 (which is likely) they will pay tax on the full $2 million capital gain, despite only having been non-residents for two weeks at the time that they sell.”

And it's not as if this sort of impact wasn't considered by the government. PwC cites an example provided by the draft exposure:

“Vicki acquired a dwelling on September 10, 2010, moving into it and establishing it as her main residence. On July 1, 2018, Vicki vacated the dwelling and moved to New York. On October 15, 2019 Vicki signs a contract to sell the dwelling.

“As Vicki is a foreign resident on October 15, 2019, she is not entitled to the main residence exemption. This outcome is not affected by Vicki previously using the dwelling as her main residence.”

The government's amendments on the capital gains tax apply to properties purchased from budget night, May 9. Existing properties are grandfathered, but only until June 30, 2019. After that date, the capital gains tax family home exemption is abolished for foreign tax residents, whether they are Australian citizens, or not.

BDO's Molesworth reckons there's a more reasonable way to skin the same cat: being a non-resident could be treated like renting the property.

“This would tax the gain proportionately, based upon the period of non-residency as a fraction of the entire ownership period.”

Whether that is entirely reasonable if, say, the owners allow their children to live in the property rent-free, is open to question, but it's a step towards a more equitable treatment.

[Read the Sydney Morning Herald article].